Fears abound that consumer confidence in preconstruction condos will falter after the Ontario Superior Court’s rejection of an application to nullify purchase agreements for a cancelled Toronto-area development.
“I’ve been in the business for 35 years and preconstruction sales have become key for us because they represent 35% of all real estate transactions for the year,” said Toronto-based Mark Cohen, managing partner of The Condo Store Marketing Systems.
“Purchasers make a commitment to buy something and they’re bound by that commitment whether the market goes up or down. They’re obligated to act on their purchase, so I believe a developer has a firm obligation to deliver their home. If a developer chooses not to honour a commitment because there’s potential for greater gain than what they bargained for, that to me is not right.”
Liberty Developments cancelled the sold-out Cosmos condos at the Vaughan Metropolitan Centre and 605 buyers wanted their purchase agreements declared invalid because of undue language contained therein. But with the price of Vaughan condos reaching $700 per square foot —$160 more than when Cosmos went to market—it is widely believed Cosmos was axed so that Liberty could return to market with a more expensive product.
In fact, Liberty has already tendered an application to build a new condo next door.
“It’s not fair and it destroys the essence of why we presell buildings,” continued Cohen. “The reason people go ahead with projects here is they get covenant from buyers, so it has to be a two-way street. They need to get the right approvals and everything in place, but they can’t change their minds because it’s convenient to do so.”
Cohen fears the fallout from the Ontario Superior Court decision will cast a pall on consumer confidence, especially in light of the recent spate of cancelled condos throughout the Greater Toronto Area.
“For anybody who wants to purchase something brand new, the court decision potentially throws a tremendous shadow of doubt over the decision to do so. This could cast doubt on purchaser confidence if a deal can be undone at a developer’s discretion.”
Michael DiPasquale, COO of Dunpar Homes, is equally disappointed that Cosmos purchasers have been left out in the cold. In the two years between when the purchase agreements were entered and terminated, prices surged and became prohibitive for many Cosmos purchasers.
“This whole thing definitely leaves a bad taste in everybody’s mouth. Cosmos was sold out, so they need to find better ways to protect consumers,” said DiPasquale.
“They invested money years ago and understood they were getting a place at certain price and at a certain location, and now that’s changed. So has the market because prices have gone up from two, three years ago.”
DiPasquale declined to speculate why Liberty Developments cancelled Cosmos, but noted that builders always have their reputations to consider. Unfortunately, homebuyers don’t always think to check.
“Being that this is the biggest investment of a purchaser’s life, I would suggest they do research on builders, their history, their reputation, their past developments, and even talk to residents, realtors and visit the places,” he said.
“I recommend they get familiar with the builder as much as they can. A lot of people do so much research before they buy a phone or a computer, but for many years—especially during the recent hot market—they just kept lining up at sales offices with cheques ready and ended up signing for units without knowing too much about the builders or the viability of the projects.”